BLBG: S&P 500 Halts 3-Day Rally On Concern Over Europe Crisis
U.S. stocks declined, halting a three-day rally for the Standard & Poor’s 500 Index, amid concern Europe’s debt crisis is worsening and as commodities slumped on news China will not relax property control policies.
Bank of America Corp. and JPMorgan Chase & Co. (JPM) dropped at least 1.2 percent, following declines in European lenders, as Spanish bond yields climbed to a euro-era record. Freeport- McMoRan Copper & Gold Inc. fell 2 percent to pace losses in commodity shares. Xerox Corp. (XRX), a provider of printers and business services, slid 2.5 percent after cutting its forecast.
The S&P 500 fell 0.5 percent to 1,369.34 at 11:05 a.m. New York time. The Dow Jones Industrial Average slid 70.61 points, or 0.6 percent, to 12,872.75. The euro sank to the lowest level since 2000 versus the yen. Trading in S&P 500 companies was up 38 percent from the 30-day average at this time of day.
“The problem is everywhere,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., based in Elmira, New York. “You breathe a sigh of relief and it comes right back. Once the disease starts, it seems hard to stop and you begin to wonder whether the euro will survive. There’s also concern about China’s statement because their actions have been more supportive of asset prices.”
Global equities followed commodities lower after Xinhua News Agency said China will seek to keep a “firm grip” on the real estate market to prevent a rebound in housing prices, citing a government circular. Spain said the recession will extend into next year as the region of Valencia prepared to seek a rescue from the central government.
Prevent Collapse
Regions in Spain face about 15 billion euros ($18 billion) of debt redemptions in the second half, with Catalonia and Valencia the most indebted states. Today, euro-area finance chiefs signed off on a package of at least 100 billion euros to prevent the collapse of the nation’s financial system.
“The problem hasn’t gone away and the unnerving part is that it’s deepening,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland. “The Spanish ghost is rising again. It’s not only the banks. The regional governments also need help. We need global economic improvement before we see a vibrant rally in the market. Things are not better yet.”
Expectations for government stimulus measures and better- than-estimated corporate profits still put the S&P 500 on track for its second straight weekly gain. Earnings have exceeded analyst forecasts at about 73 percent of the 118 S&P 500 companies that have reported quarterly results so far, according to data compiled by Bloomberg. Analysts project a 1.6 percent decline in second-quarter profits, the data showed.
Financial shares tumbled, sending the KBW Bank Index of 24 stocks down 1.2 percent. Bank of America lost 1.7 percent to $7.14. JPMorgan fell 1.2 percent to $34.05.
Commodity Shares
Commodity shares slumped amid concern about a global slowdown and as a rally in the U.S. dollar reduces the appeal of raw materials. The S&P GSCI gauge of commodities slid 0.7 percent. Freeport-McMoRan, the biggest publicly traded copper producer, retreated 2 percent to $33.74.
Xerox slumped 2.5 percent to $7.01. The company cut its full-year profit forecast as the economic slump in Europe crimped demand for technology.
Chipotle Mexican Grill Inc. (CMG) tumbled 22 percent to $314.58. The best-performing restaurant stock in the S&P 500 last year reported second-quarter sales that trailed analysts’ estimates.
Freescale Semiconductor Ltd. lost 6.6 percent to $9.54. The maker of semiconductor processors forecast third-quarter revenue that missed analysts’ estimates.
SanDisk Corp. (SNDK) rallied 15 percent to $40.32. The maker of flash memory for mobile devices reported second-quarter profit that topped analysts’ estimates.
35% Surge
Google Inc. (GOOG) advanced 3 percent to $611. The owner of the most popular search engine said second-quarter revenue surged 35 percent, helped by its acquisition of Motorola Mobility Holdings and as more users clicked on advertisements.
Schlumberger Ltd. (SLB) added 2.1 percent to $70.07. The world’s largest oilfield-services provider said second-quarter profit rose as customers increased their quest for crude outside the U.S. and Canada onshore market.
Baker Hughes Inc. (BHI) jumped 8.4 percent to $45.27 after the third-largest oilfield-services company reported second-quarter profit that beat analysts’ estimates.
General Electric Co. (GE) rose 0.7 percent to $19.93. Earnings (SPX) climbed 7 percent in the second quarter after profit growth at the finance and energy units overcame a drop in wind-turbine orders.
Protection Costs
The cost of protecting against U.S. equity losses is dropping at the fastest rate in more than three years, pushed lower by speculation the Federal Reserve will stimulate the economy as concern about Europe recedes.
Puts with an exercise level 10 percent below the S&P 500 cost 8.73 points more than calls 10 percent above on July 18, the lowest since May 2011, according to data on three-month contracts compiled by Bloomberg. The price relationship known as skew shrunk 32 percent since its June 15 high, the biggest decline since March 2009 over comparable periods. The S&P 500 is up 7.1 percent since its June 1 low.
U.S. shares jumped in the past month as optimism grew that European leaders would be able to contain the region’s crisis and investors speculated the Fed will increase stimulus measures. Fed Chairman Ben S. Bernanke this week told senators the central bank is prepared to act to boost growth if the labor market doesn’t improve.
“The acute concern about Europe’s debt crisis has faded somewhat, and markets have become a bit more complacent,” Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., which has more than $120 billion in client assets, said yesterday in a phone interview. “The market has moved very quickly to now speculate about the next round of monetary easing, anticipating some kind of policy response.”
To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net
